Watson has recovered from the calf injury that has kept him out of the Guinness Six Nations to date and he comes in for Bath teammate Jonathan Joseph on the right wing.
The 2017 British & Irish Lion is one of two England changes from the side that beat Ireland in Round 3, with flanker Mark Wilson also recalled.
Wilson has also been out since the World Cup with a knee problem but returns at openside flanker for Sam Underhill, who drops out of the 23 because of an unspecified injury.
Ben Youngs keeps his place at scrum-half ahead of Willi Heinz, while Jones has again opted to start Courtney Lawes at blindside flanker after his man-of-the-match display against Ireland.
England have won their last three Championship home matches against Wales, and a fourth on Saturday will keep their hopes of lifting the trophy alive ahead of the final weekend.
“We’ve had a really good two-week preparation – a fallow week in Oxford where we had good training days last Thursday and Friday and three good training days this week culminating in a very good session Wednesday,” Jones said.
“Wales are a very tough, well-coached side and they’ve been building on their attack since Wayne Pivac has taken over.
“It’s always a tough game against Wales and we know they will bring that toughness to all the contest areas.
“We’re looking forward to playing at home again and getting back out in front of our fantastic fans.”
England starting XV to face Wales at Twickenham on Saturday, March 7
15 Elliot Daly (Saracens, 42 caps)
14 Anthony Watson (Bath Rugby, 42 caps)
13 Manu Tuilagi (Leicester Tigers, 42 caps)
12 Owen Farrell (Saracens, 82 caps) (c)
11 Jonny May (Leicester Tigers, 55 caps)
10 George Ford (Leicester Tigers, 68 caps)
9 Ben Youngs (Leicester Tigers, 98 caps)
1 Joe Marler (Harlequins, 70 caps)
2 Jamie George (Saracens, 48 caps)
3 Kyle Sinckler (Harlequins, 34 caps)
4 Maro Itoje (Saracens, 37 caps)
5 George Kruis (Saracens, 44 caps)
6 Courtney Lawes (Northampton Saints, 84 caps)
7 Mark Wilson (Sale Sharks, 18 caps)
8 Tom Curry (Sale Sharks, 22 caps)
16 Luke Cowan-Dickie (Exeter Chiefs, 23 caps)
17 Ellis Genge (Leicester Tigers, 17 caps)
18 Will Stuart (Bath Rugby, 2 caps)
19 Joe Launchbury (Wasps, 64 caps)
20 Charlie Ewels (Bath Rugby, 14 caps)
21 Ben Earl (Saracens, 2 caps)
22 Willi Heinz (Gloucester Rugby, 12 caps)
23 Henry Slade (Exeter Chiefs, 28 caps)